F.A. Hayek was a Nobel-prize winning economist. In the 1970s, in the middle of a punishing recession and inflationary period that lasted into the beginning Ronald Reagan’s presidency, Hayek proposed that the solution to government-caused inflation and its associated problems was to allow the issuance of private, irredeemable money to compete with fiat issued by governments in a book called “The Denationalisation of Money.” Decades before Bitcoin or anything like it had been conceived, at a time when even online checking would have seemed futuristic to everyday people, Hayek believed that private currency would encourage competition and that a variety of sound money options would arise as a result.

William J. Luther, the director of the American Institute for Economic Research’s Sound Money project, writes in a recent article that in many ways Bitcoin and the crypto market generally fulfill the vision that Hayek had. He notes that critics of the “denationalization” plan were correct in some of their assumptions, like the fact that once a lot of people are using a given private money, there’s a high incentive to inflate the currency, i.e., sell more notes without real accountability.

However, blockchain-enabled cryptocurrencies solve this problem, by and large, with a fixed issuance schedule that cannot be altered by a single participant. Indeed, for an inflation plan to ever succeed in something like Bitcoin would require the collusion of nearly all its participants. Not that it hasn’t happened before, but in that case, as expected, the participants hard-forked away from the chain that had been victimized.

And just as Hayek believed, such a move would only make alternatives which had not succumbed to such debasement that much more attractive. Alternatively, coins like Monero, which have fixed scheduled inflation eternally might then be more attractive for their predictability. Therefore the market of private monies, where users have a wide array of choices based on their goals and needs, is working as intended – Bitcoin has an incentive to stick to its principals and maintain its network effect, while others have an incentive to develop superior alternatives and attempt to capture some or all of said network effect.

Luther writes:

“In some sense, cryptocurrencies have put Hayek’s thought experiment into practice. Privately issued cryptocurrencies compete directly with traditional government-issued monies. Unlike gold, silver, and salt, cryptocurrencies like bitcoin, ether, and dash have no obvious non-monetary use. They are not commodities, nor are they redeemable for commodities. Rather, they are privately issued irredeemable monies, much like Hayek envisioned.”

He notes that most cryptos do not currently have a “stable purchasing power.” Due to the volatility of markets, it’s difficult to know from one day to the next what a given number of satoshis will get you at the store, leaving cryptocurrencies largely in the land of speculative assets. Stablecoins are growing faster as more people get into crypto trading, but they remain primarily a trader’s tool, not intended for day-to-day purchases.

All of which is to say that as far as actually revolutionizing the economy and healing the wounds of bad policy, cryptos have some ways to go. The importance of stable purchasing power cannot be understated. If someone earns X value, they need to be able to translate that value to the grocery store and pay their bills. The possibility that their paycheck might have much greater value down the road does not solve immediate problems.

As Luther concludes, experiment and innovation are the only way to find workable solutions moving forward.

“So it is probably too early to say how things will shake out. Hayek was clearly onto something with potential when he proposed allowing private alternatives to poorly managed government monies. But as Hayek wrote elsewhere, competition is a discovery procedure: we need to let it work to reveal what types of money people most want and how best to provide them. As cryptocurrency pioneer Nick Szabo has written, the unsettled questions about cryptocurrency ‘can only be settled by actually fielding them and seeing how they work in practice.’”

Indeed, blockchain forever surprises us all. In the space of a few months, traders and everyday users were presented multiple new options for denominating their crypto in US dollars in the form of stablecoins. As the demand for solutions that service the economy in the same ways that fiat is able to do emerge, the potential that actual, world-shifting technology rises to the challenge also increases.